What Are the Benefits and Drawbacks of an SPV?
Special Purpose Vehicles (SPVs) have become an increasingly popular structure for buying and managing property.
Choosing to invest through an SPV depends on your financial goals, tax position, and long-term strategy. While the benefits can be substantial, especially for portfolio investors, the drawbacks, particularly in terms of cost and complexity, should not be overlooked.
Always seek advice from a qualified mortgage broker or property tax specialist before proceeding.
What is an SPV?
A Special Purpose Vehicle (SPV) is a separate legal entity created for a specific business purpose, typically to hold and manage property assets.
In the UK, SPVs can be set up as limited companies and are commonly used by landlords, developers and investors.
Benefits of Using an SPV for Property Investment
1. Limited Liability and Risk Isolation
One of the main advantages of using an SPV is that it limits your personal liability. Any debts or legal issues related to the property are confined to the SPV, protecting your personal assets.
2. Tax Efficiency
SPVs can offer tax advantages, especially for higher-rate taxpayers. Rental income is subject to corporation tax, which can be lower than personal income tax, and profits can be retained within the company for reinvestment.
3. Simplified Portfolio Management
Using an SPV makes it easier to manage multiple properties under one corporate structure. This can simplify accounting, financing, and ownership transfers.
4. Estate Planning and Succession
Transferring ownership of property held in an SPV can be done by transferring shares, which may be more tax-efficient and administratively simpler than transferring the property itself.
Drawbacks of Using an SPV
1. Setup and Administrative Costs
Creating and maintaining an SPV involves legal, accounting, and administrative expenses. These include company formation fees, annual filings, and professional services.
2. Stamp Duty Surcharge
Properties purchased through an SPV are subject to the standard stamp duty on commercial property, plus a 3% surcharge for limited companies. This can significantly increase acquisition costs.
3. Financing Challenges
Some lenders are more cautious when lending to SPVs, and mortgage products may come with stricter terms or higher interest rates.
4. Complexity and Compliance
Running an SPV requires ongoing compliance with Companies House and HMRC regulations. This adds a layer of complexity that may not suit all investors.
Meet the team
Our commercial lending experts are ready to support your plans for now and the future.
Applications and queries
News and events
Stay up to date with developments here at YBS Commercial.
Want to join our panel?
If you are not already a member of our broker panel and would like to join, please use the button below to find out more and how to join.